Sales, thus far in 2014, have been disappointing for mass retailers. Not in any dramatic sense — the nation’s leading retailers are turning in performances that can accurately be called respectable. But business hasn’t, by any means, been inspiring.

Wanted: Something new and different

April 7th, 2014

by David Pinto

Sales, thus far in 2014, have been disappointing for mass retailers. Not in any dramatic sense — the nation’s leading retailers are turning in performances that can accurately be called respectable. But business hasn’t, by any means, been inspiring.

Those looking to place blame have found many easy targets. The economy, while recovering, is hardly robust. Rather, it continues to limp along, somewhere between respectability and acceptability.

The new health insurance program linked, apparently forever, with President Obama, remains a distraction, especially for those who wait for what they hope will be a reprieve.
The winter of 2014, the most devastating in years by any reckoning — at least in the East, the South and the Midwest — has kept customers indoors and, consequently, less interested in shopping than is normal for this time of year. Out West, the draught remains the critical issue. Then there’s the mudslide in Washington ...

But another element has entered into the mix, discouraging bargain hunting and dampening enthusiasm among a consumer population that normally embraces shopping as a cold-weather pastime: There’s little to buy. The goods are available, in their usual quantities with the usual price and promotional appeals. But little on the shelves is new, exciting or ­compelling.

Examples abound. For starters, let’s examine the most compelling case. In many ways, for many Americans, the mass retailing marketplace of 2014 revolves around Costco. For many American consumers, it represents all that is new, innovative, promotionally attractive or value-oriented for shoppers. Offering a limited product assortment — perhaps 5,000 SKUs — Costco depends on innovation to draw customers and ring up sales.

Truth is, however, Costco’s volume thus far this year has been disappointing — at least to Costco. The warehouse club’s sales continue to lead the industry, but those sales are not up to Costco’s usual standards. And the reason is a simple one: The Costco merchandise assortment offers customers little that is new, less that is innovative, especially when compared to Costco’s history of introducing innovative product and service breakthroughs as quickly as the customer can absorb them.

If Costco’s performance disappoints, what can be expected from the rest of the mass retailing community?

Walgreens has announced that its earnings will fall short of projections and, more stunningly, that it plans to close some stores. At CVS Caremark, the news is much the same: While its Caremark PBM is performing nicely, its drug store performance is less appealing, despite the fact that the retailer has opened some 50 new-generation outlets.

Target has become a magnet for bad news, most of it surrounding the hacking scandal that sharply dampened its performance during the holiday selling season. As for archrival Walmart, its new chief executive officer has informed his associates that the business is not what it should be, and that he intends to fix it. As a result, the emphasis at Walmart will be shifted to the smaller format that the retailer has been flirting with in recent times, while the Supercenters will be cleaned up, and pricing will be adjusted.

Make no mistake: The retailers just named, along with many others, are world-class businesses. Costco, by any reckoning, is the most innovative retailer in America. Walgreens and CVS are arguably the two most exciting drug store chains operating anywhere in the world today. Walmart has set the standard in this country for all of this century and much of the last one. Where the world’s largest retailer has stumbled, the beneficiary has usually been Target, a retailer often favorably compared to Walmart.

True, there have been distractions. Perhaps Walgreens has been distracted by its Alliance Boots merger. Maybe Caremark has gotten in the way of CVS. Arguably, Walmart is reaching a saturation point in terms of U.S. Supercenters. The hacking scandal has certainly been a distraction for Target.

But part of the problem must be placed at the product assortment level. Put another way, these retailers are offering their customers very little that is new, different or compelling. More to the point, it’s not their fault. Very little that is new, different or compelling has emerged in the retail marketplace of 2014.

In this, suppliers are hardly blameless. In the main, they continue to do business in the same old ways, looking for ways onto retailer shelves that have little to do with product innovation. Put another way, when Costco, home of the treasure hunt, experiences a falloff in merchandising innovation, all of mass retailing needs an injection of excitement.

Now for the good news. Later this month the National Association of Chain Drug Stores will hold its Annual Meeting in Phoenix. It is the inaugural conference in a series of industry meetings that will run through the summer. And it offers both retailers and suppliers the opportunity to discuss what’s going on in retailing, what’s really important and what needs to be done.

The smart members of the retail community will hopefully take advantage of this opportunity. For the rest, sadly, it will likely remain business as usual.